GROEC: Combination method via Generalized Rolling Origin Evaluation

Combination methods have performed well in time series forecast competitions. This study proposes a simple but general methodology for combining time series forecast methods. Weights are calculated using a cross-validation scheme that assigns greater weights to methods with more accurate in-sample predictions. The methodology was used to combine forecasts from the Theta, exponential smoothing, and ARIMA models, and placed fifth in the M4 Competition for both point and interval forecasting.     

MGARCH models: Trade-off between feasibility and flexibility

Multivariate GARCH (MGARCH) models need to be restricted so that their estimation is feasible in large systems and so that the covariance stationarity and positive definiteness of conditional covariance matrices are guaranteed. This paper analyzes the limitations of some of the popular restricted parametric MGARCH models that are often used to represent the dynamics observed in real systems of financial returns. These limitations are illustrated using simulated data generated by general VECH models of different dimensions in which volatilities and correlations are interrelated. We show that the restrictions imposed by the BEKK model are very unrealistic, generating potentially misleading forecasts of conditional correlations. On the other hand, models based on the DCC specification provide appropriate forecasts. Alternative estimators of the parameters are important in order to simplify the computations, and do not have implications for the estimates of conditional correlations. The implications of the restrictions imposed by the different specifications of MGARCH models considered are illustrated by forecasting the volatilities and correlations of a five-dimensional system of exchange rate returns.     

A CRITICAL REVIEW ON EVOLUTION OF RISK FACTORS AND FACTOR MODELS

The purpose of this work is to critically evaluate the evolution of risk factors and factor models. A systematic and structured literature review is carried out to observe and understand the past trends and extant patterns/themes in the present research area, evaluate contributions and summarize knowledge, thereby identifying limitations, implications and potential directions of further research. The main message from the study is that evolution of risk factors and factor models are continuous and endless development. Still today over 300 risk factors are identified by the researchers and many other yet to be discovered but out of them all only few are significantly responsible in explaining the stock markets risk return relationship. Study classifies risk factors into two groups: global and specific risk factors. Study answer the question ‘whether evolution of risk factors and factor models are endless development’. Finally, the present study gives an appropriate direction to the future studies to be taken in terms of risk factors and factor models. Due to continuous evolution and changing of nature of the risk factor it seems quite impossible to have a stable efficient factor models that can explain stock market risk return relationship globally in long run.     

New perspectives on gray sheep behavior in E-commerce recommendations

With the exponential rise in the size of data being generated, personalization based on recommender systems has become an important aspect of digital marketing strategy of E-Commerce companies. Recommender systems also help these companies in cross-selling, up-selling and to increase the customer loyalty. However, presence of certain users, known as gray sheep users, with eccentric taste, minimizes the overall efficiency of the recommender systems. Hence, their identification and removal from the computation system is critical for more efficient recommendations. This work presents psychographic models-based approaches for gray sheep user identification with improved performance. It also studies gray sheep behavior across different domains and contexts, apart from introducing the idea of gray sheep items.     

Spatial and Scope Effects: Valuations of Coastal Management Practices

We explore how values for environmental management in the Kimberley region of Australia respond to changes in spatial scale and attribute scope. A discrete choice experiment was conducted that included the impacts of management on marine no‐take areas, Aboriginal rangers, recreational facilities, and coastal development. A split sample single‐site design was used to estimate values for the Kimberley region as a whole, and for two separate smaller sub‐regions, allowing us to test for spatial preference heterogeneity. Management outcomes for different regions were displayed on a map to show respondents explicitly where outcomes would occur. We show that willingness to pay results are similar between the two smaller sub‐regions, and that willingness to pay for the attributes increased when management occurred at the larger geographical scale. However, respondents were somewhat insensitive to changes in the scope of the two cardinal attributes: area of no‐take and number of rangers. We discuss the implications of this spatial and scope insensitivity for choice experiment research.     

Ecological Fallacy and Covariates: New Insights based on Multilevel Modelling of Individual Data

The paper provides a new and more explicit formulation of the assumptions needed by the ordinary ecological regression to provide unbiased estimates and clarifies why violations of these assumptions will affect any method of ecological inference. Empirical evidence is obtained by showing that estimates provided by three main ecological inference methods are heavily biased when compared with multilevel logistic regression applied to a unique set of individual data on voting behaviour. The main findings of our paper have two important implications that can be extended to all situations where the assumptions needed to apply ecological inference are violated in the data: (i) only ecological inference methods that allow one to model the effect of covariates have a chance to produce unbiased estimates, and (ii) there are certain data generating mechanisms producing a kind of bias in ecological estimates that cannot be corrected by modelling the effect of covariates.     

How do the Renminbi and other East Asian currencies co-move?

This paper investigates the degree and the nature of exchange rate co-movements between the Renminbi and a set of seven East Asian currencies by estimating Markov switching models with regime-dependent correlations and time-varying transition probabilities. These models have several advantages. First, exchange rate co-movements can vary across different depreciation and appreciation regimes. Second, the Renminbi can act as a transition variable that provides information regarding how the exchange rates evolve over time. After controlling for global effects and exchange market pressures, the results yield robust evidence of the Renminbi’s rising role in East Asia as a significant factor in currency fluctuations. A key result is that regional currencies tend to overreact when the Renminbi depreciates and underreact when it appreciates, suggesting that East Asian economies are not willing to allow their currency to substantially appreciate against the Chinese currency.     

Financial institutions’ business models and the global transmission of monetary policy

Global financial institutions play an important role in channeling funds across countries and, therefore, transmitting monetary policy from one country to another. In this paper, we study whether such international transmission depends on financial institutions’ business models. In particular, we use Dutch, Spanish, and U.S. confidential supervisory data to test whether the transmission operates differently through banks, insurance companies, and pension funds. We find marked heterogeneity in the transmission of monetary policy across the three types of institutions, across the three banking systems, and across banks within each banking system. While insurance companies and pension funds do not transmit home-country monetary policy internationally, banks do, with the direction and strength of the transmission determined by their business models and balance sheet characteristics.     

United States oil and gas stock returns with multi-factor pricing models: 2008–2018

International oil demand is met by large government-owned producers, with remaining production divided between publicly traded Majors and Independents. This study compares publicly traded oil producer equity returns traded on the NYSE for the Majors and Independent US oil producers. Individual producer returns were related to equity and oil returns. Equity market risk is lower for large Majors and higher for smaller Independent rivals. Oil producers’ risk premiums associated with oil are smaller for large Majors and larger for smaller Independents. Natural gas returns generally do not affect producer returns. Major returns are inversely while smaller Independent returns are positively related to the size effect. Major oil producer returns are positively related to the value effect and negatively related to momentum.     

Getting From ‘Me’ to ‘We’: Role Clarity,Team Process,and the Transition From Individual Knowledge to Shared Mental Models in Employee Dyads

Shared mental models are crucial for team functioning; however, little research to date has focussed on uncovering the predictors of shared mental models. The present study investigates the effect of role clarity on shared mental models by means of its indirect effects via team process. Two hundred and two undergraduate students participated in a dyadic firefighting simulation in which their role clarity, team process, and mental model similarity were measured. Analyses conducted at the dyadic level suggest that role clarity predicts mental model similarity via its effects on team process. Copyright © 2018 ASAC. Published by John Wiley & Sons, Ltd.